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Brazillian Ethanol Industry Readies for Growth

25 Jul

Brazil is the largest ethanol exporter in the world, and is second only to the United States in terms of production.   The industry is on the cusp of major growth.

Brazil biofuel largely comes from sugarcane, a more efficient fuel source than the corn used in the United States.  Sugarcane is widely considered to be the best of the alternative transportation fuels commercially produced today.

Major corporations have increased their interest in Brazilian sugarcane ethanol production  in recent years.  Shell, for example, launched a $12 billion biofuels joint venture with Brazilian firm Cosan last month.  The new firm, Raizen, will merge ethanol, sugar and conventional fuel divisions and will be the fifth largest company in Brazil in terms of revenue.

“Shell got involved because it believes the amount of energy needed by the world is not going to be possible just by [relying on] fossil fuels… and the motivation for Cosan was to transform sugarcane ethanol into an international commodity,” explained Raizan’s new CEO, Vasco Dias.

Domestic demand for ethanol is very high in Brazil, where 86% of all vehicles will be “flex-fuel” by the year 2020.  “Flex-fuel” vehicles are able to operate on gasoline, ethanol, or any mixture of the two.  In 2010, 54.2% of all sugarcane was used to produce ethanol, and that percentage is predicted to rise to 68.5% by 2020.

The U.S. political decision to repeal $6 billion in ethanol subsidies and remove a $0.54 per gallon tariff import tax on ethanol was welcome news to the Brazilian ethanol industry which anticipates market growth as a result.  Indeed, the outlook for sugarcane ethanol is so positive that the Brazilian government  reportedly changed its legal status from an agricultural commodity to a “strategic fuel.”

Although China and Russia have accused Brazilian ethanol policies of driving up the cost of sugar to 30 year highs, Brazil disputes these claims and furthermore says it can increase production of sugar and ethanol without resorting to land clearing, which is a major contributor to  climate change.

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